Tuesday, August 9, 2011

"Who's gonna buy them now?"



Remember Bill Gross's infamous Tweet on June 30th when he wondered aloud who will buy Treasuries now that QE2 was ending.

Well despite the end of Quantitative Easing and a first-ever downgrade in the U.S. credit rating by a major ratings agency, the 10-year Treasury yield is now more tha ONE FULL PERCENT below the level where Bill Gross worried aloud publicly.

You'd think a guy who runs over $200 bln of bond money and who's dubbed, "The Bond King," would know something about bonds.

15 comments:

Matt Franko said...

Mike,
CNBC had him on the "panel" to break down the Fed announcement and no one even brought that up.... like he never even "tweeted" that at best irresponsible statement.

Looks like a good "dont panic" call on the FoxTV hit yesterday... hang in there.

Resp,

Anti said...

Up is down and down is up.

Anonymous said...

You haven't poked fun at the gold fans in a while. They're wealthy enough now to take the ribbing. Give it another shot......

Mike Norman said...

Anon,

Most of the gold fans (Schiff, Paulson, etc), have been short Treasuries, so they have no gains. Schiff won't admit that, I'm sure (and he's also long euro stocks), but Paulson's fund is down big-time.

googleheim said...

Oh yeah

and we have to pay back the $2 trillion to china, $1 trillion to OPEC, etc

will someone please step up and tell these hoarders to buy USA ?

Anonymous said...

it's cool to crow...but that's yesterday's news. why buy a bond when the fed has just given you a free 2 yr call option? hoist the jolly roger!

word verification: magymest

hmmm, almost just like i said...lol

Tom Hickey said...

"will someone please step up and tell these hoarders to buy USA ?"

A currency is only spendable in it currency zone. Eventually China will either sell its tsys to someone else who wants to save USD or spend them in the US, or the tsys will mature and the reserves will be credited to China's reserve account at the Fed. In the meanwhile, China or counterparties if China sells the tsys will collect interest.

What's the problem here? It is a lot of nonsense.

What if "no one" wants to buy tsys? The Fed is the market maker and it will buy them on the open market, although initially the primary dealers take up the slack as market makers also. But the cb is the market maker of last resort for governments. There will always be a market for tsys as long as there is a government.

What Gross meant is that interest rates would rise. How did that trade work out for him? Bond king? Or court jester?

googleheim said...

neither court king or jester

more like charlie rose ego stroker so he can put his face on the tube

of course a currency is only spendable in it's zone

that's what i want - i want these hoarders of treasuries to use them to buy usa goods

Tom Hickey said...

"that's what i want - i want these hoarders of treasuries to use them to buy usa goods"

Eventually that happens. In the meantime, the US subsidizes saving with interest payments. If the public realized that interest is operationally unnecessary and constitutes a subsidy, that might change quickly.

"Wake the town and tell the people."

Anonymous said...

"Most of the gold fans (Schiff, Paulson, etc), have been short Treasuries, so they have no gains."

It's Paulson's long financials position that is causing the losses. His gold funds are coining money.

Also, there are gold deflationists who correctly understood that stress on currencies (i.e. Euro) would cause buying of gold as an alternate currency play. You can own both gold and treasuries and be consistent.

Adam said...

Anyone see Dylan Ratigan's meltdown. Although slightly off paradigm it was brilliant.

Tom Hickey said...

"Also, there are gold deflationists who correctly understood that stress on currencies (i.e. Euro) would cause buying of gold as an alternate currency play. You can own both gold and treasuries and be consistent."

Right, I called risk off after Bear and going to gold and CHF in the summer when the GFC appeared imminent.

Risk is still off, IMHO. Gold is still a hold, IMHO, since I don't think we are through the GFC yet by any means. The threat is deflation and currency turbulence.

The important thing about the Fed announcement about stable ZIRP for a couple of years out it that it takes interest rate risk off tsys when yields are so low, making them a stable parking place. This is significant because it takes some pressure off physical gold and CHF which are in short supply relative to the tremendous amount of financial wealth looking for a safe haven in this storm.

When I say "risk off," I am speaking of the long term trend that most most investor construct their portfolios in terms of. There are many cyclical trends, from long term to intermediate term, to short term, to very short term to day trading. Depending on one's balance of investing and trading, one needs to figure risk on/risk off in terms of all relevant trends. Obviously, day trading and very short term, or even short term are of little interest to investors and they should disregard them and not get spooked by them.

Investors (like Buffet) are more concerned with value ("fundamentals") and traders with price action ("technicals"). The difference between price and historical value determines how the cyclical trend is diverging from the norm.

Coming out of a Ponzi phase, in which the up swing was large, we are now going through a corresponding down swing that has not run its course yet.

Gold, US tsys, CHF are obvious safe havens when risk is off. But no matter the environment and differences among cycles, value v. price, there are always hedges that promise a better return with relatively less risk than others. That's what portfolio management and trading are all about.

Seen in this light, I think that Gross's statement, "who is gonna buy them now" was an expression of moral and political sentiment rather than a sound financial judgment. I'll bet he wishes now he never said it.

(for information only; not intended as financial advice)

Mike Norman said...

Anon,

Paulson's short Treasury position was even larger than his gold position.

googleheim said...

Hi Tom

Yes, there is a lobotomist disconnect with this debt / china / export thing.

A right wing journalist was on last night on Charlie Rose, and again in the same sentence there is this vast gulf between debt and treasuries and exports.

Here are the two versions :

Incorrect version : China is a rich country that exchanges their Yuan to us so we can borrow so we can then lend cheap money out.

Correct version : China's Yuan is used internally and it is strictly undervalued and reserved for domestic slave trade of keeping workers inside China working or slaving for China. China makes exports and they are sold to the USA in U$D and no currency is exchanged. China deposits the monies made here in Treasury accounts. China is able to do this because of free trade ( for all intensive purposes ) and neoliberal access to USA market b/c of Kissinger, Nixon and Bush I, II and probably Clinton.

The only currency exchanged is when they repatriat it back in Yuan if they even do that.

China is sitting on treasuries and could use this money to buy USA goods, but it is not.

This means the Bush plans have backfired. China is not buying our goods, but maybe the USA farmers are making out OK with their soy and wheat sales to China while being subsidized for ethanoCorn.

Therefore, the reason China has our debt is because we bought their crap which has flooded our markets. US global companies flocked to tax free zones in China in droves and so our manufacturing is down.

The incorrect version is based on austrian "taxes pay for everything" gold standard mentality.

Where is protectionisto Dick Gephardt ? safety netter with social programs and fair trade hawk ?

Matt Franko said...

Mike,

CNBC reported that Paulsons fund is down 21%...